Thursday, March 8, 2007

During the process of creating my Futures and Forex trading blog, I took the time to review other popular trading blogs on the net to try and learn what sorts of things attract readership to a trading blog. During this process, I found Dr. Steenbarger’s site Trader Feed. After reading several of his blog articles it became clear to me that this was a high quality site with consistently well thought out and well written topics regarding trading psychology, market analysis and trading. While looking through his site, I saw that he was selling a new book called Enhanced Trader Performance: Proven Strategies From the Cutting Edge of Trading Psychology. Having been impressed with his blog articles I ordered the book from Amazon.To be perfectly honest, unlike a lot of other traders out there I have been consistently disappointed with the typical trading psychology book. I don’t disagree with the principles, but rather there seems to be a serious lack of practical application in many of these types of books. Everyone knows that they shouldn’t pull their stops or do stupid (and emotional) things while trading – but how do you actually change your behavior?

The book starts off with an example that is counter to examples in other trading psychology books that I have read. Basically, the unemotional trader is still a loser – despite his lack of emotion, and the emotional trader uses his feelings to push himself harder to succeed. This example resonated with me, since I’ve seen several traders that are unemotional still continue to fail – after all if you don’t have an edge it doesn’t matter if you’re last name is Manson.

One of the best points of the book resides in the next few chapters and for me was the quintessential element of the book – practice. Just as an athlete must train thousands of hours to run a mere 50m in the Olympics, a trader must practice continually to hone their edge. The biggest reason that I have had difficulties in my own trading has been from lack of confidence. As the author states, it is difficult to build confidence when you are losing. The way to get back into a winning state is to practice (preferably with historical simulated data tick by tick). The way I do it is with NeoTicker’s simulated server (where I can see my market, indicators, and execution platform and actually take simulated trades over the past day, week, month or whatever). There are other platforms like NinjaTrader that can do this type of simulation as well. According to Brett, another excellent training device is to watch yourself take real-time trades with the use of a video camera. This is something I’ve always thought about, and reading this has inspired me to make it happen in the near future.

As part of these “practice” chapters, Brett reviews different elements of a trade that the trader must train for. Just like the athlete that may be strong on endurance but weak on the sprint, a trader must bring together pattern recognition, decision making, and trade execution into one seamless process. Brett also discusses how we can train to improve each of these components and gives specific software/training that he uses. Another fantastic portion of the book is devoted to discussing how a new trader, intermediate trader, and advanced trader should train – because for each of them there are different things to work on and the further along in your trading you are, the harder you must work. An important point that Brett illustrates is that the reason many beginning traders fail is that they don’t give themselves time to have fun and really enjoy the learning process. After all, the beginning golfer shouldn’t expect to become Tiger Woods overnight.

The last several chapters focus on psychology and how different practices of psychology can be utilized to help address specific problems. Brett states that certain destructive trading practices can indeed be addressed by positive self-talk but deep rooted psychological barriers cannot necessarily be overcome in this fashion. Brett illustrates several different ways to tackle deep rooted psychological problems in these final chapters.

For myself, I know that this is a trading book that I will be re-reading again and again. It is not the typical trading psychology book filled with fluff and rehashed common sense, but rather a manual for personal development as a trader. It is obvious to me that Brett is not only a psychologist but also a trader and this is definitely a determining factor in the usefulness of this book to the developing or experienced trader. Finally, I have a trading psychology book in my bookshelf that I feel addresses the psychology of developing as a trader as well as the practical applications to make that development a reality.

3 comments:

Great review. I'm 2/3rds the way through the book. This is the best trading book I've read; however if I was a beginning trader I probably wouldn't get as much out of it because I wouldn't understand what he meant by practicing for perfection and putting in the level of work that is required of dedicated elite level professionals. The best parts are how he emphasizes the need for practice and finding your trading niche. When I'm done reading the book I will probably give my review on my blog.